Canada has not seen a bank failure since Security Home Mortgage Corporation, a Calgary-based company, went bankrupt in 1996, putting $42 million in bank deposits at risk.
Two decades later we have another mortgage company, Home Capital Group, teetering on the brink of bankruptcy. Deposits at Home Capital were expected to fall to $192 million this week, down 90 per cent from the roughly $2 billion it held at the end of March. To stay afloat the embattled company took out a $2 billion lifeline (at a punitive interest rate) and suspended its dividend.
It truly is a run on the bank, and clients of Home Capital, which includes subsidiaries Home Trust and Oaken Financial, are concerned about their deposits. Should they be? Perhaps not. Home Trust is a member of Canada Deposit Insurance Corporation (CDIC), which handled the Security Home Mortgage Corporation collapse in 1996 and restored client deposits within three weeks.
But clients aren’t taking any chances. As Rob Carrick pointed out on Twitter, even GIC deposits are being redeemed early:
✔@rcarrick Am surprised at the number of people who say they’re considering paying a penalty to redeem CDIC-protected GICs from alt banks, trusts etc.
The average monthly 2016 Social Security check is US$1,341, which is US$45 per day, or a little over $16,000 per year.
Stories abound about how people are not able to live – or only struggle to get by – on their Social Security income in the United States. Even if they can manage to walk the budget tightrope, it’s not much of a retirement to look forward to and usually it’s one that is supplemented with work.
You can do better
Now is the time for you to take control of your finances so that you are financially fit for your retirement..
First you need to learn what your benefit will be upon your retirement age. You can do this by contacting social security .gov, opening an account and seeing your work history and future earnings. This can also be done via phone and snail mail but why? It’s much more convenient to do it online.
Once you know your estimated payout you can get to work doubling it by building a portfolio of dividend paying growth stocks. Or you can use an ETF such as DVY ( iShares Select Dividend ) which yields over 3% at its current price. Mix that with VTI ( Vanguard Total Stock Market ) and SPY ( S&P 500 Index ), both paying over 2% and you have a solid dividend growth portfolio.
While you wait for your retirement date
You can reinvest the dividends while you are in your accumulation phase thus compounding them for faster results. Over time you will see your quarterly dividend payments grow and grow as well as your portfolio value.
Graduating from college is a huge milestone. You’re now ready to start your career, and you’re excited about getting a house or apartment, a car, a new work wardrobe, and more. But all of those things cost money. And don’t forget repaying student loan debt, insurance premiums, utility bills, food costs, and a long list of other expenses. Since you’re facing these new expenses, it’s essential to create a solid financial plan.
Make a budget and manage your debt
Experts recommend starting your monthly budget by thinking of the “50-30-20” rule. After receiving your first paycheck, you’ll know your net income, which is how much you receive after paying taxes and insurance premiums. From your net income, put 50 per cent towards needs such as rent, utilities, and food; another 30 per cent towards non-necessities or “wants;” and the final 20 per cent towards debt repayment and savings. However, if your student loan debt is substantial, flip the percentages so that 30 per cent goes towards debt repayment and savings, and 20 per cent goes towards wants.
Student loans are usually broken up into several loans with varying interest rates. The best way to tack them is to pay off the loans with the highest interest rates first. Pay the minimum towards the balances with the lowest interest rates, and make larger-than-the-minimum payments on the loans with the highest interest rates. “The biggest mistake you can make is paying the minimum into each loan and waiting until you make more money when you’re older to deal with them,” warns Time.
Look to the future
Life is full of unexpected surprises, so an emergency fund is crucial. If your car needed a major repair, if your laptop needed replacing, if you lost your job – what would you do? If you have an emergency fund, you’ll be able to pull from there instead of from your monthly budget. People often face going into debt because they have no way to cover unexpected expenses. To prevent this from happening to you, plan for the unexpected by putting a small amount of each paycheck into a savings account.
Based on the widespread media coverage of the 2016 Canadian census this week, Canada’s baby boomers are going to be just as much of a demographic force as ever once they enter their golden years. For the first time, our seniors now outnumber our kids, the CBC reported.
Not all seniors are baby boomers, of course, but sadly the reverse will soon be true: most if not all baby boomers will be seniors. For this generation retirement (or semi-retirement) is a huge looming event, as a quick browse of this site will establish. Hey, just this week I got a package from Service Canada advising me that I will be able to draw Old Age Security (OAS) when I turn 65 next April. And I intend to take it then too, as I wrote in MoneySense last August: Why I’m taking OAS right at 65.
Boomers need to face up to their own mortality
All of which suggests it’s time for Canadian boomers to start looking more seriously at their own mortality and the admittedly dreary topic of estate planning. I covered this Thursday in my latest MoneySense Retired Money column: Retirees need to start thinking ahead.
In my Financial Post article that ran on Wednesday, I looked at estate planning from a different perspective: how the original “Wealthy Boomer” — Donald Trump — is tapping his family members for senior roles in his administration and possibly for his business succession planning. Click on Donald Trump is upping the ante in the Wealth Transfer game.
Ian Campbell
One of the sources for the FP piece was business transition and valuation expert Ian Campbell, pictured. (He himself admits to his strong resemblance to investing legend Warren Buffett!). By coincidence I reached out to Ian about the Trump piece just as he had published a blog on that very topic. It ran on the Hub Wednesday under the headline Generational Business Transaction: The Apprentice. Check the links to his site for his free newsletter.
The Truth about Working in Retirement
Our best-selling (G&M, Amazon among others) book, Victory Lap Retirement, continues to get some positive reviews. Earlier this week Ellen Roseman of Toronto Star fame wrote the following review on Golden Girl Finance: The Truth about Working in Retirement. As Ellen recounts, she herself has retired from her full-time newspaper gig but continues to be fairly busy in the semi-retirement described in our book.
Mutual fund companies Excel Funds, Franklin Templeton enter ETF business
Finally, some big news in the asset management industry, where it was announced that two Canadian mutual fund companies — Excel Funds Management and Franklin Templeton Investments — are entering the ETF business. The Globe & Mail’s Clare O’Hara reported this on May 2nd. Click on Franklin Templeton, Excel Funds to enter Canadian ETF market.
If you became seriously sick or injured today, would you be able to afford all your bills? Think about not only your medical expenses, but also your monthly payments: utilities, mortgage, car, insurance, loan repayment, etc.
Health insurance might pay for your hospital bills, but if you’re unable to work for an extended period of time, would you feel the pain of lost income?
Most of us certainly would. Fortunately, income protection insurance is designed to help us carry on without too much disruption.
What Is Income Protection Insurance?
In exchange for a monthly premium, you get peace of mind through income protection insurance. If you were unable to work due to an injury or illness, income protection insurance essentially replaces your income.
Specific details will depend on each policy, but in general you can expect to claim your income protection insurance more than once. That means you can benefit from the payouts any time you get sick or injured, and not just the first time you experience a major setback.
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Canada has not seen a bank failure since Security Home Mortgage Corporation, a Calgary-based company, went bankrupt in 1996, putting $42 million in bank deposits at risk.
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